America Online Inc. agreed to pay a $1.25 million fine and change its practice of discouraging consumers from canceling service, after New York Attorney General Eliot L. Spitzer started an investigation into the company's behavior.

Spitzer's office received about 300 customer complaints since 2000 and found that AOL's customer service personnel were given a financial incentive to prevent subscribers from leaving the service.

AOL did not admit wrongdoing, but the Dulles company agreed to alter its practices and to use a third-party company to verify whether customers wish to continue getting the service. The company also agreed to refund up to four months' worth of service to all New York consumers who claim harm based on improper cancellation procedures.

The settlement comes as AOL struggles to hold onto its base of 21 million Internet service subscribers. AOL's primary business is in connecting subscribers to the Internet through dial-up modems. That business is rapidly eroding, as more users sign up for broadband connections that come bundled with Internet service from other providers.

AOL has faced other, similar allegations, including a case brought by Ohio's attorney general in 2003. AOL settled that case for $75,000 in April of this year and provided refunds to some consumers. Also in 2003, AOL agreed to a non-monetary settlement on a case brought by the Federal Trade Commission.

According to Spitzer's findings, AOL customer representatives received bonuses of thousands of dollars if they managed to retain about half of the people who called trying to cancel service -- and that led some employees to fail to process such requests. Workers who did not meet that quota were overlooked for promotions or sent for additional training, Spitzer's office said.

AOL said it will change its procedures within the next several months.

"America Online is pleased to have reached an agreement with the state of New York on certain customer-care practices, and we believe this agreement will increase quality assurance," said Nicholas Graham, a company spokesman.

America Online also agreed to refund up to four months' worth of service to some New York consumers.